Genius in Microfinance - Reflections on Pancho Otero

Genius in Microfinance - Reflections on Pancho Otero
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In a recent retrospective, Rich Rosenberg called Pancho Otero, the founding leader of Bolivia's Prodem and BancoSol, a genius. With Pancho's sudden death last month, I find myself surprised to speak with many people who work in microfinance or financial inclusion today but do not know about Pancho's genius. And so, I would like to take this moment to tell the story of who Pancho was and what he accomplished.

Genius can be applied in many spheres, from art to action. But all notions of genius share the idea that a genius sees beyond the things ordinary people see and works in some extraordinary way to bring that vision into being, disregarding conventional boundaries. I think Pancho would have enjoyed this thought about genius, by seventeenth century English author Jonathan Swift, "When a great genius appears in the world you may know him by this sign; that the dunces are all in confederacy against him." But that is the end of the story, not the beginning.

In 1986 Pancho was hired by Accion to start a microenterprise lending organization in Bolivia. His signal accomplishment was to create an organization that was so good at what it did that it gave rise to the idea - and then the reality - that a microfinance operation lending exclusively to the poor could become a full fledged commercial bank. And when Prodem launched BancoSol, Pancho became President of the first private commercial bank in Latin America dedicated to the microenterprises of the poor. BancoSol, in turn gave impulse to the transformation of microfinance NGOs into financial institutions all over the world and set the ball rolling for the widespread commercialization of microfinance.

Genius does not work alone, and Pancho had help of many kinds - a cultural tradition among his clients, mainly Aymara people, of entrepreneurship and honoring debts, and a set of capable and influential backers in both Bolivia and North America, who helped finance and advise the new organization.

But Pancho's own unique contribution? I think his genius lay in two attributes, his personal charisma and his iconoclastic passion. He applied them both to great effect in creating first Prodem and then BancoSol.

Pancho's first genius was a winning way with all kinds of people. He could establish rapport with clients in an instant. He understood, empathized and honored the poor of Bolivia. As a passionate Latin American leftist, he believed - and practiced - radical solidarity with the poor and indigenous. Perhaps he was sometimes a romantic about this, but not when he was actually in the field, where he felt fully at ease. Pancho believed that a microenterprise organization should be built on trust between the client and the institution, trust that grows from the connections created when people look each other in the eye. Pancho treated clients with kindness, sympathy, and camaraderie.

That was the mistica he brought to his work and spread among his staff, a sense of mission that suffused every facet of Prodem. In the early days, Prodem was steeped in this mistica. It perspired mistica.

And that mistica inspired the staff as Pancho created a sense of excitement and discovery among them. Every time a credit committee met to consider a loan application, Pancho saw it as an opportunity for learning and growth. And so he set loan officers to challenge each others' assumptions, turning the credit committees into classrooms for staff. As Pancho's life has been memorialized in Bolivia, members of his staff are among those offering the most moving tributes.

Prodem staff lived by a few catch phrases that captured translated the mistica into practice. Ni un vaso de agua (not even a glass of water) emphasized expectations that staff would be fully ethical in dealings with clients, reversing patterns of corruption in Bolivia associated with government lenders. "Zero tolerance" sent loan officers out immediately upon arrears, not (as Pancho later explained) for the purpose of harassment, but first of all to find out whether the client was "can't pay" and needed to be worked with sympathetically or "won't pay" and would be treated strictly. In a video interview with MicroSave he explains the presumption at Prodem that arrears usually signalled a shortcoming of the institution, not of the client.

Pancho also turned his genius for people full blast on the supporters of Prodem, from the top political figures of Bolivia, to donors at USAID and the IDB, to colleagues at Accion. He charmed everyone with warmth, humor and conviction, and in return, received the backing he needed in the form of Accion's full support, grants from USAID and the IDB, and local political support. It is hard to believe today, but at that time the case Pancho repeatedly had to make was something we now take for granted: that low income people can and will repay their loans and form the basis for a successful financial operation.

As for the second strand of genius, Pancho was a highly motivated iconoclast, by ideology and by nature. Born and raised in Bolivia, Pancho was profoundly influenced early in life by two politically active leftist uncles, one of whom was gunned down by the Bolivian military. He gloried in establishing himself in contrast to authority, and especially against the role of the United States in Latin American affairs during the 1960s and 1970s. His heroes were revolutionaries, and he saw microfinance as his contribution to the revolutionary tradition. This side of Pancho's genius is responsible for his dedication to making Prodem an excellent institution that learned from its own experience rather than simply copying others. It enabled him to create a vision for the organization, rally his staff around that vision, and resist slipping into a more donor-led position. He turned that questioning spirit on Prodem itself, challenging it to do things in a way that turned conventional banking on its head. Pancho wanted Prodem to be the anti-bank.

Which is why it is ironic that his most significant achievement was the conversion of the NGO Prodem into a bank. Pancho did not originate the idea for BancoSol, but he created the conditions that made it possible by making Prodem a truly excellent operation that was growing fast and breaking even in just a few years. By 1989, after only two years of operation, the prospect arose that Prodem could become a bank (as it was financially viable) and needed to become a bank (in order to raise the funds to continue growing). It is hard to believe now that in 1989 this was a revolutionary idea, one that at first even Accion's board of directors were reluctant to endorse. Over the next few years, Pancho continued to advance Prodem's success while working with a team set up by Accion and Calmeadow to develop a business plan, find investors, and secure regulatory approval. It was a proud day in February 1992 when BancoSol opened its doors, and surely one of the handful of most significant dates in the evolution of microfinance.

But Pancho's iconoclasm was also his tragic flaw, at least so far as the BancoSol story is concerned. As an anti-banker himself, he wanted BancoSol to stay as different from a bank as Prodem had been, and thus, he defied the formalization that the new shareholders and the regulatory authorities demanded. As effective as BancoSol was, with Pancho at the helm it resisted the formal systems necessary for a larger, regulated institution. Pancho preferred to do business based on person-to-person connections among his team, and he was temperamentally allergic to bureaucracy and control. He clashed with those who sought to impose more of that on him and his own dear creation.

But BancoSol simply could not operate as a bank on mistica alone. And so, in 1994, with great reluctance and sadness, the board of BancoSol asked Pancho to step down as President and CEO. This was a great disappointment to Pancho, and the bitterness engendered when he had to surrender his role at BancoSol stayed with him for years.

Pancho believed wholeheartedly in the power of microfinance to transform lives, but only if it were delivered with proper care and connection to clients. If he were starting out today, he would undoubtedly be one of the new advocates of "client-centricity", though I'm sure he would dismiss the term itself as corporate-speak.

Pancho continued to work on the kind of microfinance he believed in, heading for countries where it was not available and where he believed it could be life-changing. He died suddenly, of cerebral malaria, in the small town of Kikwit, in the hinterlands of the Democratic Republic of Congo, where he was building yet another microfinance program, Credit Ya Mpa.

As I think about Pancho personally, I remember a man who loved to be contrary, and because he was warm and funny and charming, usually got away with it. He was the kind of person who, while entering the U.S. with his Bolivian passport, picked an argument with the customs official about U.S. policy in Latin America, nearly getting himself pulled into detention. He was the kind of person who, when requested to speak about a certain topic in a conference, would talk eloquently about something else. He had talents - like drawing perfect circles freehand (an unusual way to impress women), and mimicking accents perfectly. Although I have not seen him in several years, I can still hear his version of Indian English, complete with head-waggle. He often talked about eye-to-eye-based trust, probably because his own eyes twinkled incorrigibly.

I'm not sure whether Pancho was "a genius", but I am sure that he had genius in him. The twinkle in his eye, and everything that came along with it, made a lasting mark on the world.

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